“TIC” is an acronym referring to Tenant-In-Common (TIC) investments in properties by multiple 1031 exchange investors. Tenants-In-Common, is a legal term that describes a form of ownership by more than one party in real estate, or any asset. In this case, the term “tenant” means a co-owner of a property, and not someone that rents the property. The distinguishing features of the tenants-in-common ownership form are:
The use of the TIC structure has evolved for tax purposes pertaining to 1031 exchanges. Per IRS requirements, 1031 tax deferral benefits only apply if a taxpayer reinvests directly in a real estate; the benefits do not apply if reinvestment is in a company (like a REIT), partnership or LLC that owns the property. In a TIC structure, each of the investors co-own an undivided interest in a property, thereby qualifying for 1031 exchange tax deferral treatment.
Per IRS guidance, TICs must meet certain conditions to qualify for 1031 exchanges, including:
Despite its benefits, the TIC structure has its drawbacks:
In recent years, the Delaware Statutory Trust (DST) has emerged as an alternative to the TIC structure. For additional information, see our blog titled Tenants-in-Common vs. Delaware Statutory Trusts. As with any investment vehicle, there are pros and cons to the TIC structure and investors should consult their financial advisors before making any 1031 exchange investment.